Risk spillover between the US and the remaining G7 stock markets using time-varying copulas with Markov switching : evidence from over a century of data
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Date
Authors
Ji, Qiang
Liu, Bing-Yue
Cunado, Juncal
Gupta, Rangan
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
This paper analyses the risk spillover effect between the US stock market and the remaining G7 stock markets by measuring the conditional Value-at-Risk (CoVaR) using time-varying copula models with Markov switching and data that covers more than 100 years. The main results suggest that the dependence structure varies with time and has distinct high and low dependence regimes. Our findings verify the existence of risk spillover between the US stock market and the remaining G7 stock markets. Furthermore, the results imply the following: 1) abnormal spikes of dynamic CoVaR were induced by well-known historical economic shocks; 2) The value of upside risk spillover is significantly larger than the downside risk spillover and 3) The magnitudes of risk spillover from the remaining G7 countries to the US are significantly larger than that from the US to these countries.
Description
Keywords
Conditional value-at-risk (CoVaR), Time-varying copula, Markov switching, Risk spillover, G7 stock markets
Sustainable Development Goals
Citation
Ji, Q., Liu, B.-Y., Cunado, J. & Gupta. R. 2020. 'Risk spillover between the US and the remaining G7 stock markets using time-varying copulas with Markov switching : evidence from over a century of data', The North American Journal of Economics and Finance, vol. 51, art. 100846, pp. 1-15.